Vesting question

[FJR]

Profit Sharing plan had 11 eligible participants at begining of Plan Year. At 12/31, the following occurred.

2 eligible HCE's

2 eligible NHCE's

7 Terminated NHCE's

1 Terminated HCE

Question is regarding vesting. Should the terminated particpants be given 100% vesting?

Thanks.

[JanetM]

This is facts and circumstances issue. But IRS has ruled in some cases and the courts have ruled in some cases. Weil v. Terson was deemed partial termination and only affected 27%.

If I were you I would vest all 100%.

[Earl]

not if they quit and there is a plan/need to replace them.

[MGB]

Even if they quit, there is still a facts and circumstances issue here. If I cut your salary in half and you quit, the IRS would not view that any different than if I laid you off.

[david rigby]

You can get some background on facts and circumstances, and other issues related to "partial termination" from the several prior discussion threads on this topic. Search

[Kirk Maldonado]

You could always play it safe and apply for an IRS determination letter.

[mbozek]

Employees who terminate voluntarily, die or retire are not included in determining whether there has been a partial termination. Also employees terminated involuntarily because of economic necessity, e.g., downturn in business are not included. People who are given the choice between taking a salary cut or having their jobs outsourced if they refuse are still making a voluntary choice to quit.

[MGB]

mbozek,

I have a hard time digesting your statement about layoffs due to downturns. (When else would you lay people off?) Do you have any cite for that interpretation?

[david rigby]

I agree with MGB's assessment. And "retirees" may also be considered involuntary separation of employment. So, we are back to facts and circumstances.

BTW, the IRS presumes all affected employees are involuntarily terminated until proven otherwise. Burden of proof is on the employer. Probably the only easy ones are deaths.

Thus, recommendation from JanetM above may be the result. Consider the cost of vesting vs. the cost of proving your case.